5 Investing Choices for a Volatile Market

1. Investors Can Adjust Their Portfolio Targets.

This is a good fit for investors who, when going through a downturn, realized that their portfolio choices were riskier than they actually have appetite for. They can adjust their investment options to be more conservative, shift assets into high-yielding savings and checking accounts and/or pay down debt.

Higher-risk portfolios tend to be equity heavy, while a conservative approach may favor bonds. One could use the Modern Portfolio Theory as a benchmark when assessing risk and building out their portfolio.

2. Investors Can Invest More and Buy the Dip.

This is for the investor who is secure in their financial stability and recognizes the great buying opportunity available for them. These investors tend to park their cash in brokerage accounts, automating their contributions.

On M1, this looks like using auto-invest or Smart Transfers on a schedule that works for them. We see a range of recurring transfers weekly, biweekly, monthly and beyond.

3. Investors Can Take Advantage of the Dip by Moving Positions.

The strategy of “moving positions” is similar to buying the dip, but takes it one step further — by moving positions to be in stocks that will benefit once the market bounces back up. For example, an expensive stock that an investor might not usually be able to afford will become cheaper during the dip, allowing them to buy into something they wouldn’t be able to under normal circumstances.

This move should solely be done by an investor who has researched objective factors, analyzed risk and carefully weighed the pros and cons. Consider macro factors that may affect the new position, prior performance during downturns and industry benchmark.

4. Investors Can Cautiously Sell.

In most cases, this is the right move for a very small subsector of investors — those who believe the big dip is still coming and want to hold everything as cash or cash alternatives until the danger subsides and plan on re-entering once the markets have stabilized.

Selling, of course, could minimize your taxes at the end of the year if you sell at a loss and decrease your end-of-year tax burden. This will also release you from a potential loss in capital if you believe the price will decrease in the future and could minimize your capital loss overall.

However, when you sell your security, you will lose your proportionate share of ownership and the rights to any potential dividends or capital gains in the future.

5. Lastly, and Maybe Most Important, Investors Can Do Nothing.

This is for the investor who is confident that, despite any temporary volatility, their portfolio will stay the course. Oftentimes, this is a fit for an experienced investor who has weathered previous downturns, coming out the other side still standing.

The choices that investors make during periods of volatility are highly personal. It’s impossible to say that one investment move can work for everyone. However, decades of economic research show that investors shouldn’t base their decision to buy, sell or adjust their portfolio based on emotional reasoning.

The bottom line is to understand your options and do your own research. Long-term conviction will help you weather downturns, market corrections and the human side of you that just wants to react.

Often (and with hindsight’s benefit), small, thoughtful moves can pay dividends in the long run.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.